Is proper revenue analysis part of your acquisition due diligence?

For various reasons, there's a lot of consolidation going on in the industry.  We're seeing larger financial advisory firms acquiring smaller ones as there are obviously a range of benefits for both parties.  However, it's not always that easy to pre-analyse the acquisition client base for potential risks, opportunities or even an accurate estimate of monthly recurring revenue or client profitability.

A great way to have a proper in-depth look at what's going on in an advisor's client base is to analyse at least 12 months' worth of commission and fee data in order to establish:

• An expansive list of all clients from whom revenue has been generated over the last year (unsurprisingly, there are often information gaps and missing clients in CRM data).
• A view of profitable vs unprofitable clients, which can be overlaid with other information, such as AUM, or more subjective details such as relationship strength, potential revenue or advocacy.
• An objective analysis of initial vs recurring revenue over the period.
• Platform concentration and the potential ease or difficulty of switching clients to new brokerage codes.
• Potential claw backs in risk books.

All of this information is available within commission and fee data and, when combined with the advisor’s book reports, a very holistic view of the revenue and the clients can be obtained prior to take-on.  More complete knowledge also puts you in a better position for communicating with the clients and establishing a solid relationship from the start, lowering the risk of losing clients who perceive the change to be non-beneficial.

Need a hand assimilating and analysing commission data for this purpose?  Chat to us at Linktank.

Why do so many financial advisors use multiple unintegrated systems?

Earlier this year, in preparation for a presentation I was delivering at Cover Magazine's Technology in Financial Services conference, we (Linktank) conducted a survey among independent financial advisory practices.  One section of the survey related to the software systems (or combinations thereof) employed by practices to meet a range of business needs (such as client relationship management, compliance, management information, financial planning and advice, practice management, client reporting, prospect management, revenue administration and so on).

We weren't particularly surprised by the results.  As it turns out, almost 75% of respondents make use of more than one system to meet different needs within their businesses.  This means that multiple systems, usually requiring multiple versions of the same static client information, are separately (and often manually) maintained.  In most cases, little or no data is shared across these systems and spreadsheets are commonly used to try to stitch information together.  The implied inefficiency is staggering.

Isn't it possible to service business requirements with a single solution?  Are software products all competing in the same spaces and leaving similar gaps?  Are independent practices unable to successfully implement solutions to meet all their needs?  Are costs and other resources a limitation to businesses doing innovative things?  Or is it just a matter of preference for combinations of favoured tools (and an unfortunate side-effect that most solutions don't offer the option of integration with other industry-specific tools)?

Why it's important to analyse your revenue

Most advisors run their commission and fee tracking as a back office function with little or indeed no integration of this vital data into their everyday business.  In our experience most advisors seem unaware of the “hidden treasure” that can be unearthed and put to good use in building an efficient and profitable business or if they are aware of it, they simply don’t know how to tackle this mammoth task.

Other than the obvious fact that the revenue is needed to run the business on a day to day basis, what are the other reasons advisors should be paying more attention to this function in their practices?  Here are just a few:

·         Building a debtor’s book to prepare business revenue projections to support future growth

·         Understanding how each client contributes to the income of your business

·         Being able to match client income to client service levels efficiently

·         Making sure that what you expect to receive from product providers is what you actually receive

·         Keeping track of business that falls off the books

·         Assist in making your practice RDR ready

Very often the main barrier to putting commission data to good use is that the reconciliation process in the business is manual and time consuming.  Spreadsheets and highlighters are the tools used and in the end the figures given on the provider commission statements are accepted as correct because the task of checking each entry is simply too big and the FSP practice has neither the time nor the resources to do so. 

Also, many product provider commission statements are supplied in a format which does not allow for easy matching and tracking of information.  This means that if the practice does decide to get serious about checking the commission receipts, they have to accept that the cost to the business will be a full time person whose only job will be commission tracking and reconciliation.  For smaller FSPs this cost can be too high and in larger FSPs the amount of work involved exceeds what one person can handle resulting in additional staff being employed at additional cost and so on.

The truth of the matter is that the longer this task is left, the bigger it becomes and the less the advisor wants to tackle it.  Added to this is that advisors are expected to be technical experts and understand the software systems on the market that can be used to track and reconcile commissions and fees.  Even if a software system is successfully chosen, implementing it into the business and ensuring you have a trained person to operate the system is equally as daunting.

So what is the answer to getting a handle on this vital element of your business? 

One way is to talk to an expert who can help you select and set up a commission system in your business as well as help you train an in house administrator but this option comes at a cost of system license fees and staff salary.  If you are big enough and can afford the costs, then this could be a solution for you. 

An alternative is to simply outsource this function to an expert for a set monthly fee and remove the hassle from your business altogether.  This way you get to focus on your core business and the commission expert focusses on releasing and delivering the added value that your commission and fee data can give to your business.  Talk to us at Linktank if you'd like to explore that option. It is also a good idea to complete an RDR Reality Check questionnaire to measure your firm's readiness.

6 steps you need to take to getting "RDR ready"

The FSB's Retail Distribution Review (RDR) is just around the corner and firms need to be thinking about getting ready.

The UK RDR process started with consultation in 2006, fully six years before implementation in 2012. Whilst the process will inevitably be a bit different in South Africa, the direction of travel is fundamentally the same, and if anything, the timescales appear to be significantly shorter. Some of the RDR principles have already started.

Firms need to ensure they are ready, and the time it takes to make the transition will depend on the firm, but if previous experience is anything to go by, these things still take time.

In these situations, the early adopters advance the quickest, and I am reminded of the famous quote attributed to Darwin "It's not the strongest of the species that survives, but the one most adaptable to change." And this change is quite a big one.

The headline is about making the move from getting paid commission by product providers to getting paid fees by clients, but there's a bit more to it than that.

The key issues are:

• Creating a  profitable business structure
• Building your own 'product' and understanding how to market and deliver it
• Finding and managing the right clients
• Understanding how to position different conversations with new and existing clients

In this post, I want to provide an overview of what we see as the six steps that firms need to take to get themselves "RDR Ready." We think they need to happen in order.

1. Understanding who you have in your business and defining your ideal client profile

The industry has taught financial advisers to prospect for anyone with a pulse. It used to be a numbers game, and many firms have ended up with a diverse range of customers and clients, some of whom are profitable and some of whom are unprofitable. Some we have great relationships with and some we may have sold something to once, and never seen since.

It's not just financial advisers that face this challenge. Almost all businesses are having to be a bit smarter about who they work with. You need to understand who your ideal clients are and what makes them ideal, because you need to understand the problems that they will pay you to solve. You also need to make a plan for what you will do about those clients that are less than ideal.

2. Understanding what people want and designing a proposition to meet it

We are going to need to be clear about the value we add to clients, and be confident when answering the client's question "What do I get for my money?" Clients have never had the visibility they will get after RDR and it's quite likely that the press and media will be persuading clients to ask the questions about value.

You may think your services are highly valuable (and they are) but can you package them in a way that convinces your client, and persuades them to willingly pay for those services? It helps when you know why your ideal client is ideal and what they want.

3.  The move to adviser charging

We need to find a way to price our proposition(s). Historically, the price has been set by the industry, but now the price will be set by advice firms. Will your clients pay what you want to charge in order to be profitable? Will you be able to make a profit? Do you even know what it costs you to deliver your service?

Financial advice firms are a diverse bunch, and there are lots of pricing strategies to consider. You can't price your services though, until you know what you have built, for whom, and what it costs to deliver it.

4. Positioning your services to new prospects

The first meeting engagement process and conversation is a crucial point to getting consistent buy-in from clients and ensuring their future expectations are managed and met.

Now you've created a proposition, you'll need to articulate it in a compelling way, so that prospects perceive it to be the value it genuinely represents. You need to manage their expectations and communicate your service and price confidently. That takes time and practice. How will you have those conversations?

5. Developing your regular planning service

Generating regular revenue means delivering ongoing value. Forget 'passive' income. There's nothing passive about having to continually deliver value. To ensure you continue getting paid, you need to continue delivering value. The key point for this is your regular planning or review service, which for most clients will probably involve an annual meeting and some touch points in between.

If you can't continue to deliver value, then clients will have the option to switch off your fees. How are you going to design your ongoing service to prevent this from happening?

6. Re-positioning your existing client relationships

No, we haven't forgotten about your existing clients. You need to develop an effective strategy that will take your existing client relationships on the RDR journey with you. How do you ensure that you protect your existing profitable relationships, your revenue stream and the value that you have created in your business? And what do you say to those clients that are not profitable?

You don't want your existing clients to find out about RDR from anyone other than you, and that conversation needs to take place from a position of confidence.

There are plenty of other things to think about along the RDR journey, but the first phase in surviving the changes is to make sure that your business is still in one piece and is fit for the future.

Why don't you check out our "RDR Reality Check" self-evaluation to see how your firm shapes up. It's available as a free tool when you register on our website. You'll also get instant access to our e books too.

Using revenue data to segment your client base

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Preparation towards the implementation of RDR legislation is a factor in many financial planning practices currently thinking along the lines of re-evaluating efficiency and profitability.  To that end, proper analysis of revenue information offers valuable insight to inform a client segmentation exercise, assuming you have:

• A robust segmentation strategy, which you could look to a good consultant to assist with for fresh perspective and objectivity
• 12 months' worth of revenue statements from all your providers, which you'd need to consolidate to a common format
• A unique identifier, such as an ID number, for each client (and/or each client group), which can be used to tie together information about the same client across multiple product provider data sets
• selected CRM and financial data to overlap, as required to inform your segmentation strategy

What you can expect to be able to glean from revenue data

Even if you don't overlay your revenue data with other demographic information, you can still expect to come away with something pretty functional and decidedly more scientific than a subjective A, B or C rating.

• Total revenue earned, per client (and/or client groups), across all revenue types, contracts and providers
• Total ongoing revenue per income recipient
• Spread across revenue types, categories and sources
• Risks and opportunities lurking in your client database

Pulling all of this together can be an enormously taxing job, though, and outsourcing it may well be a quicker and more efficient approach.  Talk to us at Linktank if you'd like to explore that option.  Definitely also complete an RDR Reality Checkquestionnaire to measure your firm's readiness.

Income reconciliation needn't be the bane of an IFA's existence

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Revenue management remains a source of misery and mystery to many financial advisory practices.  It's often a counter-productive, poorly automated part of the business, and not without reason.

Multiple data sources in multiple formats

If you're an independent financial advisory firm, you'll be familiar with the frustration of having each product provider supply revenue information in their own preferred format, either via logins to their systems or by dispensing files via email.  It's a pretty consuming job just to consolidate the data, never mind balancing against expected revenue or bank statements.  And, of course, some product providers still insist on delivering revenue statements only as PDF documents, causing many FSPs to employ the mind-numbingly inefficient 'yellow highlighter method' of reconciliation.  Going on to analyse client profitability, discern fees on client level or mine data for business opportunities or risks isn't often even part of the plan, given the enormity of the task of simply pulling the various sources of information together in the first place.  And being able to accurately and efficiently manage revenue is only going to become more important in the changing legislative landscape.

There are more efficient ways of doing it

There are some seriously great pieces of tech out there to assist businesses with revenue management, some of which can be implemented pretty quickly and painlessly, especially if you already have the right dedicated resources in your business.  Alternatively, outsourcing the entire function of income reconciliation is increasingly popular among financial advisory practices of all shapes and sizes.  Let's face it - the ability to streamline non-core functions whilst focusing more energy on core business is a differentiating edge in the evolving financial services industry.

Considering outsourcing?  Chat to us at Linktank.

A quick guide to selecting financial planning and CRM software

A quick guide to selecting financial planning and CRM software

Making technology changes in any business is an uncomfortable process; financial advisory practices are no exception.  Over the years I've come across lots of FSPs changing software, for a variety of reasons, but I've come across very few that have approached the exercise with solid planning.  Large institutions often embark on a formal process of requirements gathering through RFI, RFP, analysis and vendor selection, but smaller businesses typically don’t have the time or the specialist resources for any of that.  Making the right technology choices is equally important to a smaller business, though.

Whether you’re looking to change because your current solution has been discontinued, or because your needs have changed or simply because there are newer, greater products on the market, it’s never a good idea to make snap decisions or to implement a new system without a thorough investigation.

In my experience, many practices follow a process something like this when choosing new software:

1. Find out from peers what they’re using and whether they’re happy.
2. Contact all the peer-recommended providers and arrange for demonstrations.
3. Ask questions during each demo centering primarily on list of gripes with the current solution.
4. Make a decision based on (a) vague recollection of the functionality and interface, (b) the quality of the demonstration and (c) cost.
5. Gasp at the business interruption, the database migration, the implementation, the support, the absent functionality, the unexpected limitations, the lack of similarity to the discarded solution and, of course, the cost.

Out of the thousands of reasons this really isn't a sufficient analysis, here are a handful to chew on:

• Business interruption is guaranteed – there’s no such thing as a painless transition – so you need to make the right choices to avoid having to do it all again changing to something else a few months later.
• By the time you've seen the last vendor’s demo, the first one is but a hazy memory and a few scribbled notes.
• Your fondness of the presenter has absolutely no correlation to the suitability of the software.
• A pretty interface isn't a good indication of functionality or usability.
• The fatal error of assessing a solution for its ability to clear your list of gripes with your current tools instead of analysing it for suitability to your requirements.
• The fact that your peers love it does not necessarily make it a foregone conclusion that you and your staff will love it too.
• Poor analysis results in nothing other than poorly aligned expectation and reality.
• A software demo is an overview and a sales pitch, not a training session.  What you see in the demo will not sufficiently prepare you for your daily operational life following implementation.

Some guidelines for adding a bit of objectivity to your selection process:

1. Run a quick survey throughout your business, asking a few probing questions about what’s currently working, what’s not working, what the expectations would be of a new piece of software and so on.  This will not only provoke thought and encourage a sense of team effort but will also help you to drill down to the real issues as well as keep in mind the areas that are actually working well in your current system in order to maintain those standards.
2. Talk to as many peers as possible, not just those closest to you, asking for details about their experiences of both software and support, and make notes.  Research vendors and their products online wherever possible.
3. Document a list of business requirements, asking as many staff members as possible to contribute.  Think about practical things, not just a list of CRM fields (which, by the way, are all pretty much standard across any CRM package throughout the world).  Consider topics such as integration with other systems (such as Astute or Outlook), desktop vs web, customisability, predefined workflow processes, output reporting, management information, investment value data feeds, manipulability of  financial planning calculators, user-friendliness, mobile capability and so on.
4. Create a diagram of all your other internal systems and tools (including spreadsheets and manual processes) when compiling your requirements and consider whether any of those could be replaced by or integrated with a new system, bearing in mind that chances are slim that you’ll find a single product that can replace absolutely every other disparate system or process in your business.  Think about everything from your new business register to your leads management, advice process and commission reconciliation to your document storage and task management.  Ideally, you’d need as many systems as possible to be able to ‘talk to each other’.
5. Prioritise your requirements and decide which are critical, important or just nice to have so that you don’t get bamboozled by the amazing things you will see in the upcoming demos and have something to help you stay grounded and realistic.
6. Use your list of requirements during every demonstration to make sure that you don’t forget to ask any questions and also to rate and score each listed requirement for suitability
7. Make sure that key staff members attend demonstrations and that the decision is not just left to one individual – it’s important that needs are met across the breadth of the business and each person will view the solution from his or her own specific perspective
8. Ask vendors about more than just functionality, making sure that you gain a fair understanding of the implementation and ongoing support processes as well as the stability of each vendor and any upcoming strategic changes they  might be planning
9. Create a case study or two, using a familiar and complicated client or process, and either get demo access to each system or ask the vendor to spend some time running through the scenario with you. This will enable you to assess each solution quantitatively for its ability to produce a result from the same set of criteria.
10. If you’re out of your depth, call in some expert advice!  Engage with consultants who are familiar with the industry, have experience with multiple software vendors and products and are practiced in eliciting business requirements and managing a rigorous selection process.